Blog: Dean BestThe cloud over Whole Foods remains

Dean Best | 15 August 2007

Acquisition stories often become fairly compulsive viewing but the struggle Whole Foods Market is having in its bid to take control of its competitor Wild Oats is rapidly becoming a classic.
 
Unlike many other takeover sagas, the tension here is not hinging on a reluctant target holding out against a relentless predator, praying for a white knight to clip-clop into view. The deal was done comparatively quickly back in February when the Wild Oats board accepted the terms of Whole Foods’ US$565m offer.
 
But since then, things have not gone smoothly.
 
Whole Foods twice extended the offer period because the Federal Trade Commission (FTC) requested more information, and then the FTC announced that it would seek to block the deal on antitrust grounds. The offer deadline has continually been extended ever since.
 
It was then revealed that Whole Foods chief John Mackey had posted anonymous comments on Internet blogs about Wild Oats and his own company between 1999 and 2006 which it was suggested might land him in hot water with the Securities and Exchange Commission (SEC). The SEC announced that it would be looking into the affair; Mackey apologised.
 
Ironically, Mackey had launched a blog to put his company’s case in the FTC proceedings. Two of his favourite pastimes would appear to be blogging and doing battle with corporate regulators, and sometimes he can clearly manage both at once.
 
Then CtW Investment Group, which has links to union pension funds holding shares in Whole Foods, called for Mackey to relinquish his role as chairman, in favour of an independent chairman "who can quickly establish credibility with regulatory authorities and shareholders".
 
This week it became apparent that the black cloud firmly tethered above Mackey’s head is still casting its shadow. On Monday, a number of consumer pressure groups weighed in on the FTC’s side, saying that the merger would lead to "higher prices, less service and diminished consumer choice".
 
And to cap it all, yesterday confidential information being submitted as part of the FTC’s case was accidentally disclosed to the media. The information appears to add grist to the FTC’s mill, as it contains plans to close Wild Oats stores and Whole Foods' projections for its own sales in local markets where an existing Wild Oats outlet would be closed. It also included details of business and marketing strategies which were meant to remain confidential.
 
The court will rule soon on whether to extend the FTC's injunction blocking the acquisition but one wonders what will happen if the deal is eventually blocked. Could Whole Foods sue for the breach of confidentiality?

After all, the information disclosed is not only pertinent to the Wild Oats acquisition; Whole Foods could claim its publication could compromise it commercially in more general terms.
 
And could the very disclosure of that information make the outcome of the antitrust case itself appealable by Whole Foods should the merger be blocked?

One might argue that the information would have been seen by the judge in any case, so its wider availability is not strictly relevant to the case.

But in the litigious US where people with overwhelming cases against them for murder can walk free on a technicality, one wouldn’t be surprised if further legal wranglings ensue.

Ben Cooper


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